Current and future sentiment index remains optimistic: Knight Frank-NAREDCO study

The Current Sentiment Index score, while safely remaining in the positive zone, has dropped mainly due to the perceived impact of the two consecutive Repo rate hikes in May and June 2022.

Current and future sentiment index remains optimistic: Knight Frank-NAREDCO study
The real estate supply-side stakeholders remain watchful of the tripartite global risks – economic turmoil in the United States, Russia – Ukraine standoff, and economic slowdown in Europe.

The latest edition of Knight Frank-NAREDCO Real Estate Sentiment Index Q2 2022 (April – June 2022) report cited that the Current Sentiment score has moderated from the previous quarter’s all-time high of 68 to 62 in Q2 2022 amidst rapidly changing economic scenario.

The Current Sentiment Index score, while safely remaining in the positive zone, has dropped mainly due to the perceived impact of the two consecutive Repo rate hikes in May and June 2022.

The Future Sentiment Score, which captures the stakeholder sentiments for the next six months for the real estate sector, has also shrunk from its historic high of 75 in Q1 2022 to 62 in Q2 2022 as pressures of a rise in inflation and depreciating rupee against the dollar cast a shadow on the sector.

Despite the decline, both the Current and Future Sentiment Scores remained optimistic. In Q2 2022, the Current Sentiment Index score and Future Sentiment Score are equal as stakeholders are confounded in the current economic climate where the impact of global economic headwinds on the Indian economy is yet to play out.

The real estate supply-side stakeholders remain watchful of the tripartite global risks – economic turmoil in the United States, Russia – Ukraine standoff, and economic slowdown in Europe.

Interestingly, the study reveals that while the Developers’ Future Sentiment Score increased during the quarter, it is the Non-Developer side (which includes banks, financial institutions, PE funds) where the Future Sentiment Score witnessed a decline.

The Developer Future Sentiment Score individually has increased from 56 in Q1 2022 to 61 in Q2 2022. Despite the rising cost pressures and home loans becoming expensive, the optimism amongst developers is on the account of a strong demand trend from home buyers.

The Non-Developer Future Sentiment Score has declined from 67 in Q1 2022 to 64 in Q2 2022. Institutional investors’ outlook remained strong yet watchful for the next six months as there is a semblance of normalcy due to widespread vaccinations and no restrictions on movement.

The residential market outlook in Q2 2022 reflects future caution as stakeholders expect strong sales and launches momentum but maintain a subdued outlook on pricing. At a time when housing affordability has been adversely impacted, the majority of stakeholders opine that there may not be further room for a home price rise.

In terms of office market outlook, 57% of survey respondents felt that office leasing in the next six months is expected to remain at par with the current volume.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “Over the last 8- 10 quarters, it has been firmly established that there is a strong latent demand in the residential sector which, when supported by right prices and sops, will convert to sales. In the last few quarters, this has given the once beleaguered sector a strong come back. While some headwinds face the residential market with the geo-political issues, high inflation leading to increased Repo rate and higher prices, demand remains strong leading to a positive outlook for the sector.”

“The key aspect to note is the growth in the commercial office sector, which was significantly impacted by the pandemic. However, it has made a strong come back in the last 3- 4 quarters supported by strong economic growth, increased hiring, and a return to office trend, keeping the office sector buoyant. Therefore, while the Sentiment Index does show caution, we expect the broader outlook to remain positive,” Shishir added.

Rajan Bandelkar, President, NAREDCO and Director of Raunak Group said, ”The Indian real estate sector is one of the few bright spots in the global economy. The sector has been performing well and has been stable for the past few quarters. While the overall economic scenario and world order are of caution, strong fundamentals of the Indian economy and the real estate sector continue to give strength to various stakeholders, including the developers, the development authorities, policymakers, and the end consumers. With the government’s focus on reforms to tighten the monetary policy and the economy, we can look forward to an even stronger real estate sector in the future.

The market trends visible over the past two to three quarters prove that despite headwinds, the sector will remain stable. While there has been a significant increase in the number of first-time homebuyers in the market, a rebound in activities in the post-pandemic period is led by a rise in employment, home ownership and investments in the sector.

The Government’s thrust on the development of cities and infrastructure, promotion of affordable housing and the sector’s focus on deliveries will collectively increase the housing supply and lead to further stability.”

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